Friday, April 19, 2013
IT was a big news in India when the price of gold eased in world market as the gold is almost like an
India with its craze for gold has amassed a gold stock of about 25000 tons which includes both in Government and private possession. As entire world stock is about 1 71300 Ton, India’s share of stock comes to one sixth of the entire gold in the world and no nation in the world is near the figure. It is impressive to read and feel for an Indian but the huge pile of gold stock does not any way help the economy directly and India is paying dearly at the trade deficit front for it.
Every successive finance Ministers of India were unhappy at the Indian craze for gold because the valuable foreign exchange got steadily converted in to gold as the public demand for it was always on the increase corresponding to the growth of population. No family in India can avoid a bulk purchase of gold whenever a marriage takes place. The retail gold shops are crowded with people during the marriage season.
India has no worthy gold mines and has to depend solely on import. The import bill of gold in 2011-12 was about 57.5 billion Dollars. When the entire trade deficit of 2011-12 stood at 185 Billion dollars, one third of it goes to gold import and when it crossed five percent of the G D P the Finance Ministry considered it alarming and raised the import duty of Gold to 50 percent this year. When the retailers transferred the duty on to the shoulders of common man every Indian was burdened to pay 50% more on the international price. However no Indian stopped purchase of gold though the quantity of gold purchased for a marriage came down and that provided a little solace to the import front.
The Indian market does not much influence the world gold price; it is the overseas investors who control the price of Gold. The steady increase of gold price in recent years was the result of the down turn of U S economy and whenever the dollar weakened the investors rushed for the purchase of gold and the investors were relying more on gold than Dollar for the last several years, putting the yellow metal at optimum price.
A European or American mother would not be worrying about the spiralling gold price whereas even an illiterate Indian mother has a standing concern on the Gold price. In India the more the gold price goes up the harder it becomes for the parents to conduct their daughter’s marriage.
When the U S economy steadies itself and the Gold price comes down to a modest 15000 rupees for 8 Grams in India it is the turn of pawn brokers to start worrying. Since gold is in possession of common man it is a ready item to pawn when cash is needed urgently and to cater their needs pawn shops from reputed banks and listed companies to ordinary home-based lenders wait for them. In most cases the private lenders charge exorbitant interest. Their competition is based on the maximum amount paid per gram of gold and believing in the infallibility of Gold price they lend money as near as possible to the current price. When the price of gold comes down they have every reason to worry . Already Banks have minimised the gold based lending in a wait and watch mood.
Though Kerala is one of the smallest states in India, it is in the forefront for the gold rush. It is said that sixty percent of the gold imported in India is channelled to this small state. The demand for gold is surprisingly high in the state. It is a state with highest number of expatriates working in Gulf countries and they are the primary buyers of gold as there are no other viable investment opportunities for them in the state due to political and social reasons. As a result of it, the state has the highest number of gold retail outlets than in any other state. There are about 550 retail gold outlets within four square kilometers of Thrissur town alone and the shops are busy with customers. All other small and big towns in Kerala are littered with gold and textile showrooms Some of the showrooms have international standard with hundreds of thousands of square feet shopping area. The competition among them is very intense making them to spend fabulous amounts for T V and Newspaper ads. Consequently the gold merchants advertise profusely in T V channels and often sponsor quality programs. The textile and gold merchants gives the life blood to the channels.
The fall in price of gold would not affect the merchants like the lenders as the volume of business would increase corresponding to the fall of price and a booming business will offset the loss.